The Fed's English

“Why do we have noses that run and feet that smell?”



The Fed’s English can be confusing too. As you can see in our Chart of The Day, that’s what’s been driving unprecedented volatility in the US bond market this year. Confusion about @FederalReserve policy is starting to breed contempt.


But oh no, no, no – silly Mucker must have this all wrong. The Fed has a “study” that proves pretty much anything they want to prove. The latest data-mining propaganda coming out of the head of the anti-dog-eat-dog-Fed-Monetary-Affairs-Division, William English, insinuates that it’s time for Bernanke and Yellen to move the goal posts again on the unemployment target. #Wonderful


Huh? This is what Bush/Obama empowered - an un-elected and un-checked central planning agency that is trying to prove out their academic dogma versus well established forces (like gravity). The Fed can pretty much keep making up the rules as they go here until the entire Bond Bubble blows up. Isn’t that awesome? History will write plenty of English “papers” on this!


Back to the Global Macro Grind


Since the Fed was wrong on its US growth forecast again (this time they and #OldWall were too low at the beginning of 2013, and the bond market started front-running them as tapering expectations perpetuated the 2-stroke engine of #StrongDollar + #RatesRising), and the unemployment rate is getting too close to their policy change target of 6.5%, they need to change the target.




Or is it? I’ll be doing another full day of institutional client meetings in NYC today and I’ll tell you that (especially for clients who aren’t in the business of being levered-long bonds that they can’t get out of) this expectations game isn’t cool.



  1. 1.       Dollar Down + Rates Down = US Growth Expectations Down (see US economic history for details)
  2. For the last month, you’ve seen every growth “Style Factor” start to underperform slow-growth yield chasing
  3. If we’re going back to slow-growth yield chasing (long Gold, Consumer Staples, and Bonds) that’s a big shift

The Fed won’t have a “study” on this because that would prove that incrementally dovish policy does 2 things:

  1. Devalues America’s Currency (which they are supposed to be protecting)
  2. Represses rates and growth expectations (as Dollar Debauchery perpetuates inflation, not real-growth)

All the while, the same western academic dogma that we imported from Europe remains in parts of Europe. This morning’s central planning bureau headline out of Italy’s Finance Minister is begging Mario Draghi to cut rates and devalue the Euro!


To review, from December 2012 to August 2013, a #StrongCurrency policy (tapering):

  1. Crushed inflation expectations
  2. Ramped real (inflation adjusted) growth expectations

But these damn bureaucrats see that very Deflating of The Inflation (from the world’s all-time high inflation readings of Gold and Food prices in 2011-2012) as a threat to their failed policies!


Moving along, I bought more exposure to our #EuroBull Macro Theme yesterday via:

  1. Eurostoxx50 Index (FEZ) which tested and held my immediate-term TRADE line of support
  2. Swiss stocks (EWL) which were holding support and have bounced a full +1% this morning

Why buy US Growth anymore if we’re going to let these clowns at the Fed blow up our currency again? This all started with Keynes in Britain, and even the British have given up on the QE thing (thank God) at this point. Carney (the Canadian who doesn’t do crack cocaine) replacing Mervyn King at the Bank of England is like replacing Bernanke with me (or something like that).


#StrongPound in the United Kingdom continues to perpetuate rising UK growth expectations. When growth expectations rise, government bond yields rise (bonds go down). The 10yr UK Gilt Bond Yield is +10 basis points in the last 2-days as the UK printed the best Services PMI reading in 16 years (UK industrial production growth just accelerated to +2.2% y/y as well).


The final point to be made this morning is that after perpetuating Gold, Bond, and Utility Bubbles with his 0%-interest-rates-forever thing (formally known in a Hedgeye “paper” as Yield Chasing), Bernanke is probably going to get tagged with creating another US stock market bubble too. Today’s II Bull/Bear Sentiment Spread just clocked a fresh YTD high at +3960bps wide to the bull side.


I am still recommending prayer for those at the Fed who still don’t yet know about the “paper” on the definition of insanity. The summary of the paper is in plain English too – doing the same thing over and over again, and expecting different results.


Our immediate-term Risk Ranges are now:


UST 10yr Yield 2.55-2.69%



Swiss Market 8113-8299

Pound 1.60-1.62

Gold 1


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


The Fed's English - Chart of the Day


The Fed's English - Virtual Portfolio


TODAY’S S&P 500 SET-UP – November 6, 2013

As we look at today's setup for the S&P 500, the range is 20 points or 0.68% downside to 1751 and 0.46% upside to 1771.                                              










THE HEDGEYE DAILY OUTLOOK - 10                                                                                                                                                                  



  • YIELD CURVE: 2.36 from 2.37
  • VIX closed at 13.27 1 day percent change of 2.63%

MACRO DATA POINTS (Bloomberg Estimates):

  • 7am: MBA Mortgage Applications, Nov. 1 (prior 6.4%)
  • 7:30am: Challenger Job Cuts, Oct., y/y (prior 19.1%)
  • 10am: Leading Index, Sept., est. 0.6% (prior 0.7%)
  • 10:30am: DOE Energy Inventories
  • 11am: Fed to buy $2.75b-$3.5b in 2020-2023 sector
  • 1:10pm: Fed’s Pianalto speaks in Ohio


  • Election results:
    • Chris Christie, Terry McAuliffe win gubernatorial contests
    • Christie’s landslide victory may bolster White House run
    • N.Y. votes to allow more casinos; Colorado approves pot tax
  • 8:30am: Treasury to release qtrly refunding plan, may comment on debt limit, plans to issue floating notes
  • 10am: HHS Sec. Kathleen Sebelius testifies before Sen. Finance Cmte on plans for fixing health insurance exchange website
  • 1:30pm: Labor Secretary Thomas Perez, former Rep. Patrick Murphy, D-Penn., attend discussion on veterans’ employment
  • 2:30pm: Sen. Lamar Alexander, R-Tenn., testifies before Commerce, Science, Transportation Cmte on science, U.S. economy
  • 2:30pm: HUD Secretary Shaun Donovan, FEMA Administrator Craig Fugate testify at Senate Homeland Security and Governmental Affairs Cmte hearing on recovery from Hurricane Sandy


  • Twitter IPO means more scrutiny of exchanges after FB debacle
  • Wells Fargo said among banks facing U.S. mortgage-bond probes
  • Former crude traders claim proof that oil market is rigged
  • Boeing seeks labor peace with offer to keep 777X in Seattle
  • Washington governor assembles perks to keep Boeing in-state
  • Google may scrap plans for HK data center, Apple Daily says
  • Tesla CEO Musk says battery supply constraining production
  • Revamp of U.S. military force planning delays contract awards


    • Ariad Pharmaceuticals (ARIA) 7:35am, $(0.44)
    • Brookfield Infrastructure (BIP) 7:30am, $0.26
    • Carlyle Group (CG) 6:30am, $0.60
    • CenterPoint Energy (CNP) 8:15am, $0.35
    • Chesapeake Energy (CHK) 7:01am, $0.42 - Preview
    • Cimarex Energy (XEC) 6am, $1.55
    • Clean Harbors (CLH) 7:30am, $0.65
    • Coeur Mining (CDE) 8:30am, $(0.22)
    • Devon Energy (DVN) 7am, $1.19 - Preview
    • Duke Energy (DUK) 7am, $1.51
    • Enbridge (ENB CN) 7am, $0.36 - Preview
    • Geo Group (GEO) 7:30am, $0.43
    • HollyFrontier (HFC) 7:30am, $0.62
    • Hospira (HSP) 7:30am, $0.44
    • Humana (HUM) 6am, $2.16
    • ING US (VOYA) 5:50am, $0.65
    • Intact Financial (IFC CN) 6:55am, $0.28
    • Lamar Advertising (LAMR) 6am, $0.18
    • Marsh & McLennan (MMC) 7am, $0.46
    • Molson Coors Brewing (TAP) 7:30am, $1.39
    • NPS Pharmaceuticals (NPSP) 8am, $(0.03)
    • OGE Energy (OGE) 7am, $0.93
    • Penn West Petroleum (PWT CN) 6:31am, $0.06
    • PennyMac Mortgage Investment (PMT) 8:30am, $0.69
    • Pepco Holdings (POM) 6:03am, $0.44
    • PHH (PHH) 8:30am, $0.12
    • Ralph Lauren (RL) 8am, $2.20 - Preview
    • Sinclair Broadcast (SBGI) 7am, $0.24
    • Starz (STRZA) 7:30am, $0.44
    • SunEdison (SUNE) 6am, $(0.13)
    • Time Warner (TWX) 7am, $0.89 - Preview
    • Vonage Holdings (VG) 8am, $0.03


    • ACADIA Pharmaceuticals (ACAD) 4:01pm, $(0.12)
    • Activision Blizzard (ATVI) 4:05pm, $0.04
    • Alnylam Pharmaceuticals (ALNY) 4pm, $(0.40)
    • American Water Works Co (AWK) 4:05pm, $0.85
    • Antero Resources (AR) Aft-mkt, $0.20
    • Atmos Energy (ATO) 5:01pm, $0.12
    • Brookdale Senior Living (BKD) 4:43pm, $(0.03)
    • CBS (CBS) 4:01pm, $0.76 - Preview
    • CenturyLink (CTL) 4:05pm, $0.63
    • Chambers Street Properties (CSG) Aft-mkt, $0.18
    • Concho Resources (CXO) 5pm, $1.03
    • Concur Technologies (CNQR) 4:15pm, $0.26
    • Continental Resources (CLR) 5:47pm, $1.49
    • Corrections Corp of America (CXW) 4:15pm, $0.62
    • EOG Resources (EOG) 5:11pm, $2.05
    • Genpact (G) 4pm, $0.26
    • Giant Interactive Group (GA) 5:05pm, $0.23
    • Hersha Hospitality (HT) 4:30pm, $0.13
    • Integrys Energy Group (TEG) 5:07pm, $0.46
    • Mid-America Apartment Communities (MAA) 4:05pm, $1.22
    • Mondelez Intl (MDLZ) 4:01pm, $0.40 - Preview
    • Oasis Petroleum (OAS) 4:15pm, $0.75
    • PDL BioPharma (PDLI) 4:02pm, $0.39
    • Prudential Financial (PRU) 4:07pm, $2.11
    • Qualcomm (QCOM) 4pm, $1.08 - Preview
    • SolarCity (SCTY) 4:01pm, $(0.51)
    • Solera Holdings (SLH) 4:08pm, $0.56
    • Sun Life Financial (SLF CN) 5:10pm, $0.64
    • Tempur Sealy Intl (TPX) 4:03pm, $0.68
    • Tesoro (TSO) 4:30pm, $0.49
    • Transocean (RIG) 4:30pm, $1.07 - Preview
    • US Silica Holdings (SLCA) 4:30pm, $0.41
    • Western Gas Partners (WES) 4:09pm, $0.40
    • Whole Foods Market (WFM) 4:02pm, $0.31 - Preview
    • YY (YY) 4:01pm, $0.31


  • Tin Exports From Indonesia Seen Jumping as Buyers Adapt to Rules
  • Platinum Giants Ready to Stare Down Union Over Pay: Commodities
  • WTI Rebounds From Five-Month Low Before U.S. Fuel Supply Data
  • Copper Rises Before U.S. Reports Seen Signaling Further Growth
  • Wheat Climbs on Signs of Demand From Egypt to Iraq; Corn Steady
  • U.S. Cotton Supply Seen Higher as Growing Conditions Improve
  • Gold Sales at Perth Mint Advance in October as Prices Tumble
  • Rebar Futures Fall for Second Day as Construction in China Slows
  • Coal Seen Rebounding in China on Indonesia Curbs: Energy Markets
  • Palm Production in Malaysia May Drop First Time in Eight Months
  • Oil Industry May Invoke Trade Law to Challenge U.S. Export Ban
  • China Targets Steel, Aluminum Overcapacity to Boost Profits
  • Traders Face Curbs on Speculation With CFTC Vote on New Limits
  • Floods to Drought Seen Curbing China’s Corn Harvest: Commodities


























The Hedgeye Macro Team














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What's new Today in Retail (11/6)

Takeaway: Athl. FW recovers from stormy 2012 led by Brand Jordan,flat out ugly ANF update, SKS exec takes over at VRA, VNO discloses losses on JCP



ADS - Earnings Call: Thursday 11/7 4:00 am

FNP - Earnings Call: Thursday 11/7 10:00 am

COH - Annual General Meeting: Thursday 11/7




Athletic Footwear Data


Takeaway: This 11.5% jump is partially impacted (helped) by tough weather last year -- when sales were down 12%. That said, take a look at Brand Jordan… Up 80% this week??? Units up 48% and ASP smoking every other athletic brand. Amazing momentum.


What's new Today in Retail (11/6) - chart1 11 6

What's new Today in Retail (11/6) - chart2 11 6

What's new Today in Retail (11/6) - chart3 11 6

What's new Today in Retail (11/6) - chart4 11 6

What's new Today in Retail (11/6) - chart5 11 6







  • "Net sales for the thirteen weeks ended November 2, 2013 decreased 12% to $1.033 billion from $1.170 billion for the thirteen weeks ended October 27, 2012."
  • "Total comparable sales for the quarter, including direct-to-consumer sales, decreased 14% with comparable U.S. sales decreasing 14% and comparable international sales decreasing 15%. Total direct-to-consumer comparable sales increased 11% for the quarter."
  • "Excluding these charges, the Company expects to report adjusted non-GAAP earnings per diluted share at the higher end of prior non-GAAP guidance of $0.40 to $0.45. This expectation now reflects lower sales and gross margin rate than anticipated offset by expense and other favorabilities."
  • "Based on a projected low double digit decrease in comparable sales for the fourth quarter, the Company expects full year adjusted non-GAAP earnings per diluted share to be in the range of $1.40 to $1.50. This projection also assumes significant gross margin rate erosion in the fourth quarter as the Company clears through excess inventory."
  • "The Company also announced that it plans to close all of its stand-alone Gilly Hicks stores. The Company expects to substantially complete the closures by the end of the first quarter of Fiscal 2014."


Takeaway. Comps down 14%? We're so often temped to get involved here, but something makes us pause. Usually that something is our concern about the relevance of the concept. This print validates our concern.


JCP, VNO - Vornado Loses $256.2 Million on Investment in J.C. Penney



  • "Vornado Realty Trust  lost a total of $256.2 million over the course of its three-year investment in the J.C. Penney Co. department store chain, the company said today in a regulatory filing."


Takeaway: They sold too early. In a year, we think the stock will be a teenager.


M - Macy’s appeals to tech-savvy consumers with new app



  • "Macy's has integrated NantMobile’s iD visual recognition technology into its Star Gifts app to allow customers to shop on the go from catalogs, billboards and magazine ads."
  • "As retailers gear up for the holiday shopping season, Macy’s — which is pushing its omnichannel initiative — is reaching out to tech-savvy mobile customers. The iD-powered app’s visual recognition technology allows mobile shoppers to scan items from a catalog, magazine ad or even from an outdoor billboard and purchase them."


Takeaway: Really progressive move by Macy's. To be clear, the Star Gifts app is not new, but the enhanced functionality is. Let's see if it helps boost e-commerce revenue.


VRA - Vera Bradley Names Robert Wallstrom Chief Executive Officer



  • "Vera Bradley, Inc. today announced that Robert T. Wallstrom has been appointed President and Chief Executive Officer and a member of the Board of Directors, effective November 11, 2013. Mr. Wallstrom succeeds Michael C. Ray, who previously announced his intention to retire as CEO."
  • "Mr. Wallstrom brings 30 years of retail experience to Vera Bradley, most recently serving as President of Saks Fifth Avenue's OFF Fifth division…"


Takeaway: We don't like VRA one bit, but this is a pretty good score for the company. We like Wallstrom's pedigree. Also, VRA is trying to broaden wholesale distribution with national accounts. This guy knows how to do it.


KER - Volcom Rolls Out New Store Format



  • The Kering-owned surf, skate and snowboard apparel brand returned to the Los Angeles area after a two-year retail absence with a 2,200-square-foot store on the Third Street Promenade in Santa Monica, Calif. The store introduces Volcom’s updated retail the West Coast after it was unveiled in March when the brand finished remodeling its New York flagship. 


What's new Today in Retail (11/6) - chart6 11 6


Takeaway: I still can't believe that Kering actually owns Volcom. It made as much sense as when it bought Puma. Last I checked, Puma was not exactly a home run.







The Health Department of Guangdong Province has confirmed that a three-year-old boy living in Dongguan, Guangdong, has been infected with the H7N9 bird flu virus. 

Breaking Bad

This note was originally published at 8am on October 23, 2013 for Hedgeye subscribers.

“Someone has to protect this family from the man who protects his family.”

-Skyler White


Who is Bernanke’s family? Who is Ben Bernanke? Who is John Galt? The People getting jammed with a trashed currency and 0% rate of return on their savings accounts want to know, “yo.” And they want to know now.


Yesterday’s all-time highs in the US stock market put a bloody pit in my stomach. I will not mince words about that and why this morning. Standing up to the tyranny of an un-elected-anti-dog-eat-dog-government-man is my Canadian-American patriotic duty.


Ben, seriously. If you aren’t going to taper, ever, why? Who do you represent? Is it the people in the business of being long bonds? Or is it the government that appointed you to lead this ongoing fear-mongering campaign? Both of our leading indicators on US #GrowthAccelerating (#StrongDollar + #RatesRising) are breaking bad, again. This one is all on you.


Back to the Global Macro Grind


“You clearly don’t know who you are talking to, so let me clue you in. I am not in danger, Skyler. I am the danger. A guy opens his door and gets shot, and you think that of me? No! I am the one who knocks!” –Walter White


That’s right Bernanke, I’m the one knocking. And it’s going to get louder if you keep this up. You can cart out everyone from PIMCO to Zervos at Jefferies to parrot whatever you think you are accomplishing here. I don’t buy it. You’re suspect.


I respect David Zervos’ penmanship and market views, so let’s break down why I think this could break bad versus what he thinks. We are two of the only consistent US stock market bulls of 2013 who have been bullish for completely different reasons:

  1. ZERVOS  - he thinks US stocks up in 2013 is all about QE and that we cannot afford to taper as that would end it all
  2. MUCKER – I think the most important part of the 2013 rally was on expectations of ending QE; not tapering is a disaster

Bernanke and the entire levered long bond bull lobby agree with Zervos. And I actually have no idea who agrees with me, which is probably why our call on US #GrowthAccelerating from 0.38% in Q412 to 2.5% now was the only one of its ilk. Our growth model called US #GrowthSlowing in October 2007 too. US Dollar Devaluation back then was my leading indicator.


So which one is it?


Oh, by the way, all of US economic and market history agrees with my view that:


1.       Strengthening currency + Rising Interest Rates = Pro-Growth Signals

2.       Devalued currency + Falling Interest Rates = #GrowthSlowing signals


In buckets of time, you only have to look past your nose and go beyond the #EOW (end of the world) stuff (2008) and look at the last 40 years of US economic history to understand my point. Both Reagan and Clinton understood this. Nixon/Carter (1970s) and Bush/Obama (last decade) did not. Markets can go up when growth slows; especially slow-growth styles like Gold and Bonds.


For those of you who think “the stock market going up reflects the economy, so Bernanke is nailing it”, I’ll remind you that’s a crock. Venezuela devalued its currency by 32% this year; its stock market is +312%; and its economy sucks – a Policy to Inflate via currency debauchery is not growth. It’s called inflation.


From Nero (50 AD) to 1920s Germany to whatever Chavez left in Venezuela, do not get me wrong, Zervos is quite right that keeping your government stimulated with a meth market can take you for quite a ride, yo! But, again, do not confuse the kind of move we saw yesterday with the one we saw before Bernanke decided not to taper on September 18th.


Rewinding the tapes, here’s what happened yesterday:

  1. US monthly payroll number missed by enough to validate Bernanke’s bs storytelling that we don’t need to taper
  2. US Dollar got smoked to a fresh YTD low
  3. US Treasury Yields snapped my 2.58% TREND line on the 10yr
  4. Gold ripped
  5. Slow growth sectors like Utilities (XLU) had triple the intraday move of the SP500

Is that what you want, yo? Another epic 2007 style US stock market bubble? If you do, we can go right back to reflating the Housing, Gold, Bond, Utility, Foreign Currency, etc. Bubbles. Kinder Morgan can trade at 85x earnings on that too. Rock on, yo.


So what do you want? As my man Walter White would say, “you all know exactly who I am. Say my name.” That’s right. I’m the guy who believes in fiscal conservatism, monetary tapering, a strong currency, and rising interest rates. “Now say my name.”


I’m the guy who went to net short yesterday (6 LONGS, 9 SHORTS in #RealTimeAlerts) and 54% Cash. Timestamped, yo. He’s Heisenberg. I’m going to roll with him, book gains, and protect my family and firm’s hard earned savings.


UST 10yr Yield 2.47-2.58%

SPX 1723-1765

VIX 11.55-14.96

USD 79.02-80.12

Euro 1.36-1.38

Gold 1317-1341


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Breaking Bad - Chart of the Day


Breaking Bad - Virtual Portfolio

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